National Association of Home Builders Discusses Economics and Housing Policy

Eye on the Economy: Housing Construction Trends Heat Up in June

Total housing starts expanded 9.8% month over month in June, reaching a 1.174 million annual starts pace, which was led by a surge in multifamily development.

Single-family starts were effectively flat, recording a 0.9% monthly decline to a 685,000 seasonally adjusted annual rate but were up 14.7% year over year. As measured on a three-month moving average, the pace of single-family starts hit a post-recession high in June. Looking forward, single-family permits were up 0.9% for June and 6% year-over-year, reaching a 687,000 annual rate. Regionally, single-family starts were up 6.8% for the month in the South, but down 27.3% in the Northeast, 7.1% in the West, and 4% in the Midwest.

Pointing to future growth, the July NAHB/Wells Fargo Housing Market Index reached 60 in July, which is the highest level since November 2005. Two of its three components also rose to levels last seen in late 2005. The index of current sales rose one point from the June level to 66, the highest in 10 years. The index for expected sales rose two points from June’s 69 to 71, also the highest in almost 10 years. The index for traffic fell one point to 43 from the six-month high in June of 44.

And more good news from June: The National Association of Realtors measure of existing home sales increased 3.2%, reaching the highest level since February 2007. Given that most new home sales are to move-up buyers, a rise in the volume of existing sales bodes well for additional single-family construction. Inventory of resale homes continues to be limited, falling to a five-month supply in June as the current sales rate.

However, the standout of the June housing starts report was multifamily construction, which for units in buildings with five or more units climbed to a 476,000 annual rate with a 28.6% monthly growth rate. Permits also expanded greatly, jumping 16.1% to a 621,000 annual rate. NAHB expects this level of apartment development to cool in the coming months.

On the supply side of the market, the most recent Producer Price Index data from the BLS revealed a small increase for wood products in June after trending down for the start of 2015. Softwood lumber prices rose 1% for the month but are down 9.1% from a recent high in September 2014. Prices for OSB rose 2.4% in June after a 20.4% slide that followed the collapse in prices that ended in July 2013. Gypsum prices slipped 1.5% in June after being flat in May, increasing to 5.3% the retreat from a February peak.